Thursday, October 16, 2008
Joe the Plumber's Taxes
The recent discussion of "Joe the plumber" has shown exactly how unfamiliar America is with American tax policy. I wish Obama would have asked John McCain, "Exactly how much money does Joe make?" The truth (straight from the real Joe's mouth - watch the video below) is that his business makes about $250,000 - $280,000 a year. Now, what I wish Obama would have asked him is "Is that 280k in REVENUE or PROFIT?" Only profits are taxed for businesses NOT revenue. So if Joe is making $280,000 in profit (after expenses, materials, labor, depreciation, etc.) then YES, he will pay 3% more on the marginal income over $250,000 (ONLY the amount over 250k). This is how marginal tax brackets work. Every business pays the same rates on the first $250k (even Donald Trump and Exxon Mobile). So bumping into a higher tax bracket does not suddenly destroy your income or overly burden anyone. This works the same way for personal income taxes. If you move up into a new bracket, only the amount of income in that higher bracket is taxed at the higher rate.
For Joe, the potential increase that had him shaking in his boots is $900 annually if he makes $280,000 in total NET profits. How is $900 a year going to keep Joe from buying his business? You guessed it. This was a setup and it is based on misinformation about American Tax policy and skewed logic about Obama's plan. McCain was adamant in the debate that Joe was going to be unable to purchase a business because of a possible $900 in additional taxes. Are you kidding me? Please, somebody in the news media point this out and give America an intro to marginal tax brackets. I run a small business. I've done the math. Yes, I could see a small increase in taxes, but it is a trivial amount compared to the revenue our nation needs from huge corporations making billions. We can't keep running deficits forever. Somebody has to pay the bills and I'm glad to pay more if my company has a huge year. Most businesses (small and large) are able to use the tax policies to their advantage. Many business expenses are deductible and assets are depreciated so that despite 36% or 39% marginal brackets, most companies pay little or no federal corporate income tax. Joe's fears are unfounded and it is a shame that the media is going to once again miss this opportunity to speak truth about tax policy and middle class Americans will make bad assumptions that end up costing us in the long term.
2 comments:
You taught me something, I didn't realize that the corporate tax system is so loophole inherent. Perhaps that's the problem. Maybe what we need is atotal revamping of our corporate tax system. This would cause corporations to get rid of thousands of tax lawyers that currently are on the payrolls of tens of thousands of American corporations to make it possible for corporations to take an almost unfair advantage of the system as it is currently written. Who mis more likely to undo the current tax policies John or Barrack. What say you?
Anonymous,
It depends on what you mean by "undo the current tax policies". If you mean, make changes to help smaller businesses compete in the market, then I'd say Obama. If you mean, make it more advantageous for the larger corporations that have lobbyists on K-street, then I'd say McCain. This is pretty clear in the policies they've presented. Obama has suggested providing capital gains tax cuts for small businesses so they can invest and grow. Cutting middle-class taxes to help stimulate the economy (which helps everyone top to bottom). McCain has suggesting continuing the current tax policies (the "bush tax cuts" that have advantaged the largest earners and wall street speculators at the expense of our national debt).
Every company has accountants. I do too. That is not a bad thing. I'm not sure what your intention is with that comments. Maybe you can explain.
Are you the same person who has been commenting on other posts here lately? How about providing a name or link to you real identity?
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